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Nasdaq 100 Watch List: September 9, 2011
Below are the Nasdaq 100 companies that are within 6% of their respective 52-week lows. Keep in mind that we received a Dow Theory Bear Market indication on August 2, 2011 (article here). This means that we have reallocated our positions to much lower levels than when we had a bull market indication on July 24, 2009 (article here).
| Symbol | Name | Trade | P/E | EPS | Yield | P/B | Div/Shr | payout ratio | % from Low |
| QGEN | Qiagen N.V. | 13.87 | 25.22 | 0.55 | 0 | 1.30 | 0 | 0.65% | |
| ESRX | Express Scripts, Inc. | 43.67 | 17.89 | 2.44 | 0 | 12.25 | 0 | 0.81% | |
| FISV | Fiserv, Inc. | 51.47 | 16.88 | 3.05 | 0 | 2.44 | 0 | 1.00% | |
| INFY | Infosys Limited | 47.17 | 17.34 | 2.72 | 1.70% | 4.57 | 0.85 | 31.25% | 1.46% |
| AMAT | Applied Materials | 10.73 | 7.39 | 1.45 | 2.90% | 1.67 | 0.32 | 22.07% | 2.14% |
| PAYX | Paychex, Inc. | 25.93 | 18.26 | 1.42 | 4.60% | 6.44 | 1.24 | 87.32% | 3.22% |
| BMC | BMC Software | 38.46 | 15.19 | 2.53 | 0 | 4.23 | 0 | 3.41% | |
| FSLR | First Solar, Inc. | 84.96 | 14.48 | 5.87 | 0 | 2.03 | 0 | 3.47% | |
| WCRX | Warner Chilcott plc | 14.95 | 31.81 | 0.47 | 0 | 141.57 | 0 | 4.18% | |
| URBN | Urban Outfitters | 24.56 | 16.63 | 1.48 | 0 | 3.01 | 0 | 4.51% | |
| EXPD | Expeditors Intl of Wash. | 42.06 | 24.03 | 1.75 | 1.10% | 4.88 | 0.5 | 28.57% | 4.78% |
| VOD | Vodafone Group Plc | 25.77 | 10.6 | 2.43 | 7.30% | 0.95 | 1.92 | 79.01% | 4.80% |
| NIHD | NII Holdings, Inc. | 36.18 | 14.7 | 2.46 | 0 | 1.67 | 0 | 4.84% | |
| VRSN | VeriSign, Inc. | 29.03 | 6.47 | 4.49 | 0 | N/A | 0 | 4.99% | |
| PCAR | PACCAR Inc. | 35.38 | 17.96 | 1.97 | 2.00% | 2.26 | 0.72 | 36.55% | 5.20% |
| SIAL | Sigma-Aldrich | 59.18 | 17.45 | 3.39 | 1.10% | 3.27 | 0.72 | 21.24% | 5.34% |
| DTV | DIRECTV | 41.42 | 13.66 | 3.03 | 0 | N/A | 0 | 5.89% | |
| CA | CA Inc. | 19.71 | 11.87 | 1.66 | 1.00% | 1.76 | 0.2 | 12.05% | 5.91% |
From this list, we have initiated new positions in Applied Materials (AMAT) and Expeditors International of Washington (EXPD) on Friday September 9, 2011 equal to 5% of our portfolio, respectively. As these stocks decline we expect to add to our positions.
Disclaimer:
On our current list, we excluded companies that have no earnings. Stocks that appear on our watch lists are not recommendations to buy. Instead, they are the starting point for doing your research and determining the best company to buy. Ideally, a stock that is purchased from this list is done after a considerable decline in the price and extensive due diligence. We suggest that readers use the March 2009 low (or the companies' most distressed level in the last 3 years) as the downside projection for investing. Our view is to embrace the worse case scenario prior to investing. A minimum of 50% decline or the November 2008 to March 2009 low, whichever is lower, would fit that description. It is important to place these companies on your own watch list so that when the opportunity arises, you can purchase them with a greater margin of safety. It is our expectation that, at the most, only 1/3 of the companies that are part of our list will outperform the market over a one-year period.
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PG&E fleeces investors and consumers alike
On August 30, 2011, the National Highway Safety Board (NHSB) issued a report (report here) on the pipeline "accident" in San Bruno, California where numerous homes and lives were lost due to negligence on the part of PG&E (PCG). The NHSB cited at least 28 issues with the way PG&E inappropriately handled the gas pipelines under their control.
This reminds us of the “ring-fenced” strategy that PG&E (PCG) employed just before filing bankruptcy in 2002 (our reference and citation here). The Federal Energy Regulatory Commission (FERC) approved a plan from PG&E to shelter it’s profitable assets and only included the money losing divisions in the bankruptcy proceedings.
Again, PG&E (PCG) has managed to stick it to both the investors and consumers.
In the News: September 3, 2011
- What to Do With All That Cash at Barron’s
- Microsoft Dividend Should Be A ‘Payout Ratio,’ Says Ticonderoga at Barron’s
- BofA, JPMorgan Among 17 Banks Sued by U.S. for $196 Billion at Bloomberg
- Monsanto Corn Falls to Illinois Bugs as Investigation Widens at Bloomberg
- First Solar Receives $455.7 Million Ex-Im Bank Loan Guarantee at Bloomberg
- BofA Can Meet Capital Goals Without Share Sale, CFO Says in Internal Memo at Bloomberg
- Debt after death: Banks chase down mourners at Yahoo!Finance
- Gold wedding bands get dumped for tungsten at Money
- Bank of America faces FDIC questions at Money
- Groupon effect: Facebook shuts down Deals, Yelp scales back at Money
- Sino-Forest's fall from grace at Money
- What went wrong at Solyndra at Fortune
- 5 warning signs that Apple has lost its magic at Fortune
- Buffett says WSJ wrong about BoA dividends at Fortune
- Bove: Nothing Unusual About Fed's Request to BofA at Fox Business News
- BofA Contigency Plan to Fed Includes Partial Separation of Merrill at Fox Business News
- Revised Dow Theory Bear Market Rally Targets at NLO
- Our Recent Market Commentary on Seeking Alpha
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Comments Off on In the News: September 3, 2011
Posted in In the news
There is no such thing as a Sophisticated Investor
We listen to Bob Brinker every weekend and his manner of steam rolling the listeners gets annoying at times. However, Diana Henriques is one of the few guest authors who (1) gets challenged directly by Bob Brinker and (2) solidly holds her ground with a lucid explanation on how Bernie Madoff and mutual funds have more in common than most people are willing to admit.
The following is a transcript, in part, of a recent interview that Bob Brinker had with Diana Henriques about her book Wizard of Lies: Bernie Madoff and the Death of Trust. Diana is clear on one thing that all investors should understand, even a well known and well established mutual fund company should be questioned on it's integrity. The clarity in Diana Henriques' responses while getting grilled by Bob Brinker requires that we recommend reading this book.
Diana Henriques:
“ …there on your statement, it looked like you owned a widely diversified portfolio of blue chips, everything from J&J to Wal-Mart, and so you had this sense, ‘well I am kinda diversified,’ there was this illusion of a diverse portfolio and you move into cash safely and into treasury bonds and back into these blue chips, so not to defend people who were willing to trust every penny they had to Bernie Madoff, they may have been deluded by the notion that they did have a balanced and very highly diverse portfolio almost like a mutual fund, of course it was nothing like a mutual fund, in fact, and the notion that you would give all your money to Bernie Madoff, in hindsight, of course looked dreadful, but how many of your listeners actually invest all of their money with Vanguard or different mutual funds but they will invest it all with a fund family because of the convenience that comes with it."
Bob Brinker:
(interrupting Diana) "That’s a good point, that’s a good point, but I’m willing to propose to you that a listener that invests with the Vanguard, a listener that invests with a Fidelity, a listener that invests with a T. Rowe Price, can simply not be compared to somebody giving their money to Bernie Madoff. He is not Vanguard, he is not Fidelity, he is not T. Rowe Price."
Diana Henriques:
"Yeah, but neither is he Joe’s Plumbing and Ponzi Scheme operation down on the corner. He was a very respectable."
Bob Brinker:
(interrupting Diana) "No but actually he was that Diana, he had a po-dunk auditing system set up in a storefront in NY, I mean, he was Joe’s Plumbing and Heating."
Diana Henriques:
"I’ve got to disagree with you there because I knew Bernie Madoff back when he was in the wild before he was in captivity, and I knew his firm very well. As a reporter at Barron’s it was one of the first places you’d call if were trying to find out what news, what impact, breaking news would had had on specific stocks or segments of stocks. For example, the night the first gulf war broke out, it hit us in NY at a very tough time right against our deadline for the next day’s business section. We took the whole section apart and put it back together again. Well, what would the out break of war going to mean to the oil stocks? How do you find out? The NYSE had been closed for hours. You called Bernie Madoff, because he pioneered after hours trading. There was a period in time when Madoff’s trading firm handled up to 10% of the daily volume of the NYSE stocks; in what is called the third market. We didn’t know him as retail investors, I knew him as a business reporter, but he had no retail customers, so far as we knew. He was a wholesale trading house but he was very well known on the street as a whole sale trading house one of the biggest, one the fastest, one of the most technologically advanced and a firm that had always set the standard for the speed of processing orders, so I have to disagree with you, people who knew wall street and who did a little 'due diligence' on Bernie Madoff would have learned that he was a very well respected wholesale trader."
Bob Brinker:
"All of which led them to the false conclusion that he was someone that you could do business with."
Diana Brinker:
"Yes…and he was someone that they could trust."
Bob Brinker:
(interrupts Diana while she is talking) (incredulously says...) "TRUST!…are you serious Diana?…you could trust!…what do you mean you could trust?"
Diana Henriques:
"He was someone certainly that they thought they could trust clearly they would not have given their money to him otherwise. On the surface, you know Bill, a shifty eyed guy with a cheap suit and scoffed shoes may commit a lot of crimes but a ponzi scheme is never going to be one of them. Ponzi schemers are by definition done by people who seem trustworthy, if they’re not they can’t even start. The can’t pull it off. So, people who think they would instantly recognize a crook like Bernie Madoff, are deluding themselves. That’s one of the dangerous lies we tell ourselves. They’re going to look like responsible respectable people."
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Considering the Crisis at Bank of America
As a former NLO dividend watch list stock, Bank of America (BAC) has fallen on hard times that in many respects were predestined. In a posting titled “Financial Panic Chronicles” dated May 9, 2009, we pointed out the similarities of the October 1929 forced merger between Austria’s number two bank BodenKreditAnstalt with number one ranked CreditAnastalt and the forced mergers between Bank of America/Merrill Lynch, Wells Fargo/Wachovia, and J.P. Morgan/Bear Stearns in 2008.
Our point of making the comparison between distinctly different institutions in different eras was to show what the hazards might be when an ailing bank isn’t allowed to fail. It was only two years after the merger of BodenKreditAnstalt with CreditAnstalt that the remaining “super bank”, CreditAnstalt, collapsed which resulted in the worldwide banking crisis.
The failure of CreditAnstalt in 1931 did not arrive without a fight. F.M. Rothschild committed enormous amounts of money from 1930 to 1931 in an effort to use his name and financial largess to sway public opinion of the health of CreditAnstalt, not unlike Warren Buffett’s most recent “investment” in Bank of America. As noted in our previous article:
“London banks, the Bank of England, Germany's Reichsbank, Bank for International Settlement and the Bank of Austria all threw money at CreditAnstalt starting in May of 1930 in a failed attempt to shore up the problem.”
The current travails of Bank of America (BAC) and Citigroup (C) may prove too enormous for market forces to bear. Talk of possible capital raises and divesting individual units through bankruptcy speak largely of the dire risk to the banking system the zombie banks pose. Bank of America, in particular, through “too big to fail” policies has become THE bank of America.
We wouldn’t be surprised if Bank of America, or another of the current top ten banks in the U.S., in an effort to stave off certain failure, will be partially or fully nationalized as CreditAnstalt before its collapse. However, such actions will only demonstrate for the investing public that band-aids should not be used to deal with hemorrhages.
Because we rely heavily upon the markets to tell us what the investing public believes will come next, we are presenting the Dow Theory downside targets for Bank of America.
According to Dow’s Theory, the following are the long-term downside targets for Bank of America (BAC):
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$18.59
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$13.44 (1/3)
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$10.865 (fair value)
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$8.29 (2/3)
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$3.14 (3/3)
Already, BAC has managed to decline below the 2/3 resistance level of $8.29 per share. This typically indicates that Bank of America stock will go to $3.14 (3/3 resistance level). In four prior peak-to-trough periods since 1982, Bank of America has managed to fall close to, or below, the previous low three times as demonstrated in our September 15, 2008 Dow Theory analysis of the stock.
Because we don’t want to assume that the Bank of America will automatically go to the prior low of $3.14, we have provided short-term Dow Theory targets for BAC.
Dow Theory on the $8.29 to $3.14 price levels ($1.73):
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$8.29
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$6.65
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$5.72
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$4.83
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$3.14
These targets are in hopes that the stock does not actually go below $3.14. Already, Bank of America has fallen below the $6.65 level leaving only $5.72 and $4.83 as possible support levels before the bank reaches $3.14.
If the voting machine known as the stock market continues on its current downward trajectory, any decline of BAC below $3.14 would require nationalization in the “best” case scenario. The worst case scenario might reveal that safety nets like FDIC insurance are the root cause of how our financial system got to where we are today. In the words of Citigroup (formerly National City) when FDIC was first proposed:
"The element of character in the choice of bank is eliminated, and the competitive appeal is shifted to other and lower standards, such as liberality in making loans. The natural result is that the standards of management are lowered, bankers may take greater risks for the sake of larger profits and the economic loss which accompanies bad bank management increases."Grant, James. Mr. Market Miscalculates. Axios Press. 2008. page 202.
Our focus on the merger of BodenKreditAnstalt and CreditAnstalt in 1929 and the subsequent failure in 1931 that led to a worldwide banking crisis should give good reason for all individuals to be concerned. The safety nets that were created as an outgrowth of failure of the banking system are not prepared to handle what may come if the perception grows that Bank of America needs to be nationalized.
Posted in 1929, Bank of America, Bodenkreditanstalt, Citigroup, CreditAnstalt, National City Bank
Tagged members
Dow Theory: Values and Price
On Friday June 24, 2011, we published an article regarding the topic of Dow’s Theory of value and price regarding Dish Networks (DISH). At the time, we suggested that a recent recommendation to buy DISH by a widely read Dow Theorist was not in keeping with Charles H. Dow’s theory on value based investing. At the time of the recommendation, DISH was trading at $28.39 and within 6.65% of the 52-week high of $30.28 set on May 31, 2011.
Our June 24th article referenced the following critical concept of Dow’s regarding values:
“The best way of reading the market is to read from the standpoint of values. The market is not like a balloon plunging hither and thither in the wind. As a whole, it represents a serious, well-considered effort on the part of farsighted and well-informed men to adjust prices to such values as exist or which are expected to exist in the not too remote future. The thought with great operators is not whether a price can be advanced, but whether the value of property which they propose to buy will lead investors and speculators six months hence to take stock at figures from ten to twenty points above present prices."In reading the market, therefore, the main point is to discover what a stock can be expected to be worth three months hence and then to see whether manipulators or investors are advancing the price of that stock toward those figures. It is often possible to read movements in the market very clearly in this way. To know values is to comprehend the meaning of movements in the market."Source: Hamilton, William Peter. Stock Market Barometer. Page 38.
In our conclusion about Dish Networks (DISH) not being priced at the most optimum level for purchase, we said the following:
“The lack of attention paid to the price as it relates to values, in the case of the recommendation of DISH, may cost an investor a decline of 30% before a material gain is achieved unless the company is bought by a larger institution.”
At the time of the June 24, 2011 recommendation by the Dow Theory Forecasts (DTF), Dish Networks (DISH) was expected to gain at least 30% in the following 12-months. The stock was able to achieve a sizable 12.75% gain in the very first month. However, as we fast forward to the most recent price of Dish Networks (DISH), we see that DISH has fallen as low $21.37 or 24.73% in a two-month period following the recommendation by the widely read (DTF) newsletter.
Obviously, the situation with Dish Networks (DISH) has not been resolved since the recommendation by DTF was specific about the increase in the stock price should take place over the next 12 months. However, the most important point that should be considered when attempting to buy a stock is whether the price is reflective of values. Buying any stock at or near a new 52-week high is definitely not based on values.
Those who bought DISH between June 24th and July 22nd using the recommendation of DTF would be justified in being disappointed with the performance of the stock thus far. Applying Dow Theory to individual stocks that are primarily on our Dividend Watch List should result in more optimal investments returns rather than haphazard speculation.
If you are considering any stocks that are on our most recent Dividend Watch List, we’ll be more that glad to profile a brief Dow Theory analysis upon request.
Please consider donating to the New Low Observer. Thank you.
Posted in Dow's Value Theory
In the News: August 21, 2011
Bargain Days at Barron's
The 2012 Crystal Ball at The Big Picture (blog)
Sending the Police Before There’s a Crime at NYTimes
And Back To Munis, As Fitch Downgrades New Jersey GO From AA To AA- at ZeroHedge (blog)
Harsh lessons from Evergreen Solar flame-out at CNET
The 2012 Crystal Ball at The Big Picture (blog)
Sending the Police Before There’s a Crime at NYTimes
And Back To Munis, As Fitch Downgrades New Jersey GO From AA To AA- at ZeroHedge (blog)
Harsh lessons from Evergreen Solar flame-out at CNET
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Comments Off on In the News: August 21, 2011
Posted in In the news
NLO Dividend Watch List: August 19, 2011
The market continued to lose its footing. The S&P 500 closed down almost 5% for the week while the Dow slipped below 10,900. The Dow Theory Bear Market stands at the end of the week with no sign of alleviating. As a result of weakness in the market, there are many opportunities to be had if and when the market turn. Our list exploded to include more than 100 companies. This after we've incorporated more filters to make sure that only quality names appear on the list. We've chosen to display only the companies that are within 5% of the low this week. If you'd like to see the full list, please consider donating to the New Low Observer.
August 19, 2011 Watch List
| Symbol | Name | Price | % Yr Low | P/E | EPS (ttm) | Dividend | Yield | Payout Ratio |
| BOH | Bank of Hawaii Corp. | 37.44 | -3.41% | 11.11 | 3.37 | 1.80 | 4.81% | 53% |
| LNC | Lincoln National Corp. | 19.46 | -3.28% | 5.67 | 3.43 | 0.20 | 1.03% | 6% |
| SEIC | SEI Investments Company | 15.71 | -2.06% | 12.88 | 1.22 | 0.24 | 1.53% | 20% |
| STT | State Street Corp. | 31.91 | -1.75% | 10.10 | 3.16 | 0.72 | 2.26% | 23% |
| BBT | BB&T Corp. | 19.27 | -1.73% | 14.27 | 1.35 | 0.64 | 3.32% | 47% |
| AFL | AFLAC Inc. | 34.61 | -1.23% | 9.11 | 3.80 | 1.20 | 3.47% | 32% |
| NTRS | Northern Trust Corp. | 34.78 | -0.91% | 13.80 | 2.52 | 1.12 | 3.22% | 44% |
| WFSL | Washington Federal, Inc. | 13.85 | -0.86% | 16.10 | 0.86 | 0.24 | 1.73% | 28% |
| MDP | Meredith Corp. | 23.63 | -0.59% | 8.50 | 2.78 | 1.02 | 4.32% | 37% |
| EV | Eaton Vance Corp. | 21.16 | -0.47% | 13.74 | 1.54 | 0.72 | 3.40% | 47% |
| SYY | Sysco Corp. | 27 | -0.44% | 13.78 | 1.96 | 1.04 | 3.85% | 53% |
| HHS | Harte-Hanks, Inc. | 7.37 | -0.27% | 10.10 | 0.73 | 0.32 | 4.34% | 44% |
| FII | Federated Investors Inc | 16.39 | -0.18% | 10.18 | 1.61 | 0.96 | 5.86% | 60% |
| DNB | Dun & Bradstreet Corp. | 62.32 | -0.08% | 12.12 | 5.14 | 1.44 | 2.31% | 28% |
| MMM | 3M Co | 76.87 | -0.17% | 13.05 | 5.89 | 2.20 | 2.86% | 37% |
| BRC | Brady Corp. | 24.94 | 0.24% | 13.13 | 1.90 | 0.72 | 2.89% | 38% |
| USB | U.S. BanCorp. | 20.56 | 0.59% | 9.98 | 2.06 | 0.50 | 2.43% | 24% |
| AVY | Avery Dennison Corp. | 26.05 | 0.77% | 9.37 | 2.78 | 1.00 | 3.84% | 36% |
| MUR | Murphy Oil Corporation | 48.69 | 0.83% | 9.88 | 4.93 | 1.10 | 2.26% | 22% |
| ANAT | American National Insurance | 72.5 | 0.95% | 12.00 | 6.04 | 3.08 | 4.25% | 51% |
| SON | Sonoco Products Co. | 28.04 | 1.23% | 14.09 | 1.99 | 1.16 | 4.14% | 58% |
| AVP | Avon Products, Inc. | 20.53 | 1.38% | 12.01 | 1.71 | 0.92 | 4.48% | 54% |
| WEYS | Weyco Group, Inc. | 22.02 | 1.43% | 18.20 | 1.21 | 0.64 | 2.91% | 53% |
| GS | Goldman Sachs Group, Inc. | 111.76 | 1.56% | 10.96 | 10.20 | 1.40 | 1.25% | 14% |
| ECL | Ecolab, Inc. | 44.53 | 1.64% | 20.06 | 2.22 | 0.70 | 1.57% | 32% |
| NC | NACCO Industries Inc. | 69.16 | 1.71% | 4.33 | 15.99 | 2.13 | 3.08% | 13% |
| BMS | Bemis Co Inc | 28.6 | 1.92% | 14.23 | 2.01 | 0.96 | 3.36% | 48% |
| TRV | The Travelers Companies, Inc. | 49.46 | 2.06% | 9.35 | 5.29 | 1.64 | 3.32% | 31% |
| FFIC | Flushing Financial Corp. | 10.73 | 2.09% | 8.19 | 1.31 | 0.52 | 4.85% | 40% |
| BMI | Badger Meter, Inc. | 32.03 | 18.20 | 1.76 | 0.64 | 2.00% | 36% | |
| CHRW | C.H. Robinson Worldwide | 63.67 | 2.20% | 25.47 | 2.50 | 1.16 | 1.82% | 46% |
| BRK-A | Berkshire Hathaway Inc. | 102591 | 2.32% | 13.76 | 7457.95 | N/A | N/A | N/A |
| HIG | Hartford Financial Services | 17.72 | 2.43% | 5.08 | 3.49 | 0.40 | 2.26% | 11% |
| SYK | Stryker Corp. | 43.8 | 2.48% | 13.86 | 3.16 | 0.72 | 1.64% | 23% |
| EOG | EOG Resources, Inc. | 87.57 | 2.52% | 55.08 | 1.59 | 0.64 | 0.73% | 40% |
| ITW | Illinois Tool Works, Inc. | 41.36 | 2.55% | 10.91 | 3.79 | 1.44 | 3.48% | 38% |
| EMR | Emerson Electric Co. | 42.46 | 2.63% | 13.10 | 3.24 | 1.38 | 3.25% | 43% |
| EXPD | Expeditors International | 40.33 | 2.86% | 23.05 | 1.75 | 0.50 | 1.24% | 29% |
| PNR | Pentair, Inc. | 30.26 | 2.89% | 13.82 | 2.19 | 0.80 | 2.64% | 37% |
| TMP | Tompkins Financial Corp. | 37 | 2.98% | 11.75 | 3.15 | 1.44 | 3.89% | 46% |
| SJW | SJW Corp. | 21.52 | 3.02% | 16.18 | 1.33 | 0.69 | 3.21% | 52% |
| MATW | Matthews International Corp. | 30.05 | 3.23% | 12.37 | 2.43 | 0.32 | 1.06% | 13% |
| PEP | PepsiCo Inc. | 62.07 | 3.28% | 15.79 | 3.93 | 2.06 | 3.32% | 52% |
| APD | Air Products & Chemicals | 75.24 | 3.34% | 14.01 | 5.37 | 2.32 | 3.08% | 43% |
| WFC | Wells Fargo & Co. | 23.36 | 3.45% | 9.05 | 2.58 | 0.48 | 2.05% | 19% |
| LLTC | Linear Technology Corp. | 26.31 | 3.54% | 10.52 | 2.50 | 0.96 | 3.65% | 38% |
| GD | General Dynamics Corp. | 57.47 | 3.62% | 8.20 | 7.01 | 1.88 | 3.27% | 27% |
| MDT | Medtronic, Inc. | 31.29 | 3.68% | 10.94 | 2.86 | 0.97 | 3.10% | 34% |
| TFX | Teleflex InCorp.orated | 49.87 | 4.07% | 9.39 | 5.31 | 1.36 | 2.73% | 26% |
| UTX | United Technologies Corp. | 67.45 | 4.46% | 13.07 | 5.16 | 1.92 | 2.85% | 37% |
| LLY | Eli Lilly & Co. | 35.01 | 4.63% | 8.24 | 4.25 | 1.96 | 5.60% | 46% |
| AOS | AO Smith Corp. | 34.43 | 4.86% | 10.28 | 3.35 | 0.64 | 1.86% | 19% |
52 companies
Watch List Summary
Much of the weakness in the market can be attribute to the banking sector. Thus it's no surprise that Bank of Hawaii (BOH) top our list. Our long time readers may remember our buy and sell recommendation of BOH back in 2009. The stock appears to have come full circle. Back in January of 2009, 6 months before the Dow Theory buy signal in July, we advised our readers to research BOH when it was trading at $37.76 with 4.8% yield. The 10-year note was trading at 2.34% which mean BOH offered a 2.46% premium over the treasury. While BOH hasn't raised their dividend, they also haven't cut it. At the same time, earnings have risen from $3 to $3.37 which bring down the payout ratio. Acquiring this stock today would give you a 2.74% premium over the 10-year note.
Top Five Performance Review
In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks in our database from August 20, 2010 (not published) and have checked their performance one year later. The top five companies on that list can be seen in the table below.
| Symbol | Name | 2010 Price | 2011 Price | % change |
| SVU | SUPERVALU Inc. | 10.08 | 6.8 | -32.54% |
| HRB | H&R Block, Inc. | 13.47 | 13.26 | -1.56% |
| BBT | BB&T Corp. | 23.11 | 19.27 | -16.62% |
| MDT | Medtronic, Inc. | 34.77 | 31.29 | -10.01% |
| WFC | Wells Fargo & Co. | 24.60 | 23.36 | -5.04% |
| Average | -13.15% | |||
| DJI | Dow Jones Industrial | 10,213.62 | 10,817.65 | 5.91% |
| SPX | S&P 500 | 1,071.69 | 1,123.53 | 4.84 |
Last year's performance was far below the market Even the "best" performer (H&R Block) lagged the market by a wide margin. The biggest hit to the list was the collapse of Supervalu (SVU). SVU's failure to pass on costs was a major factor in their profit decline. Although holding on to these names for one year yielded a negative return, each name offered at least 10% profit within seven months of purchase.
Disclaimer:
On our current list, we excluded companies that have no earnings. Stocks that appear on our watch lists are not recommendations to buy. Instead, they are the starting point for doing your research and determining the best company to buy. Ideally, a stock that is purchased from this list is done after a considerable decline in the price and extensive due diligence. We suggest that readers use the March 2009 low (or the companies' most distressed level in the last 2 years) as the downside projection for investing. Our view is to embrace the worse case scenario prior to investing. A minimum of 50% decline or the November 2008 to March 2009 low, whichever is lower, would fit that description. It is important to place these companies on your own watch list so that when the opportunity arises, you can purchase them with a greater margin of safety. It is our expectation that, at the most, only 1/3 of the companies that are part of our list will outperform the market over a one-year period.
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Dow Theory: Bear Market Remains as INDPRO Surges
On Tuesday August 16th, it was reported that the current unadjusted Industrial Production Index (INDPRO) rose to 94.1525 for the month of July from the June level of 93.3075 which exceeded the March 2011 unadjusted high of 93.0943 (adj. 93.0770). We'll have to watch closely in the coming months to determine if the INDPRO tops out with the July or August figures.
In our recent Dow Theory analysis of August 2, 2011, we indicated that we'd be surprised at an INDPRO figure that was above the March 2011 level. As new information has come in (i.e. government revisions of the data) it appears that we have to allow for some time to pass before the stats are "finalized." We'll definitely provide updates as the revised data presents solid indications on the direction of the economy or confirmation of Dow Theory.
So far, the market still retains the Dow Theory bear market indication. Additionally, there continues to be resistance, on the part of the Dow Jones Industrial Average, to convincingly close above the first bear market rally target of 11,416.80. We don't believe that it is advisable to take on new positions unless they are considered speculative in nature, which means that you're willing to accept all losses.
With a new cyclical bull market initiated when the Dow Jones Industrial Average and Dow Jones Transportation Average go above their respective highs for 2011, the missed opportunity for investment gains on new purchases between now and then are worthwhile. When the next bull market indication is provided, our Dividend and Nasdaq 100 watch lists will point you to ideal investment candidates at reasonable values.
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2 Years of Profitable Dow Theory Analysis
Below are the articles that take you from the beginning of a cyclical bull market indication starting on July 24, 2009 to a bear market indication on August 2, 2011. Although it is possible to have a change from the current bear market indication to a bull market indication at a moments notice, we're willing to submit that an uninterrrupted bull market indication in a two year period within a secular bear market has yielded the intended results. In some instances, these articles can be found on Seeking Alpha.com (found here) with added commentary from those who had questions about the concepts or ideas on the topic of Dow Theory.
| Date | Article Title | Topic |
| 8/2/2011 | Dow Theory: August 2, 2011 | A new bear market begins, bull market ends |
| 6/30/2011 | Waiting for Confirmation | Bull market confirmation, next target Apr & May high |
| 6/24/2011 | Dow Theory: Price and Values | Values, price, seeking fair profits |
| 6/13/2011 | Russell: Wrong about the Industrial Production Index | Industrial Production: 1929 and today |
| 5/4/2011 | Price Decline equals Dividends Canceled | Values, dividends, fair profit |
| 4/6/2011 | Richard Russell's Miscue | Russell says 2007-2009 was not bear market |
| 4/6/2011 | Dow Theory: Cyclical Bull Market Confirmed | cyclical bull market confirmation |
| 2/14/2011 | Dow Theory: Continuation of Bull Market Confirmed | cyclical bull market confirmation |
| 11/8/2010 | Dow Theory Q&A | Primary trends, confirmations, S&P in Dow Theory |
| 11/7/2010 | A Lesson In Dow Theory | When to buy, sell, and wait for confirmation |
| 11/4/2010 | Dow Theory: Continuation of Bull Market Confirmed | cyclical bull market confirmation |
| 9/25/2010 | Seeking Ten Percent | Seeking pair profits |
| 9/8/2010 | Dow Theory: The Formation of a Line | Lines |
| 8/5/2010 | Dow Theory, Stock Markets and Economic Forecasting | Economic forecasting, stock markets |
| 6/30/2010 | Dow Theory | Bear market non-confirmation |
| 5/13/2010 | Dow Theory | Secondary reactions |
| 4/13/2010 | Dow Theory Q&A | When to sell; asset allocation |
| 4/11/2010 | Dow Theory | cyclical bull market confirmation |
| 3/23/2010 | Dow Theory | cyclical bull market confirmation |
| 2/23/2010 | Dow Theory Q&A | Manipulation; Averages discount everything |
| 2/22/2010 | Dow Theory | 50% principle |
| 1/24/2010 | Dow Theory | Downside targets |
| 1/19/2010 | Dow Theory on Fair Value | Values and Price |
| 1/10/2010 | Dow Theory | confirmation; line; 50% principle |
| 9/24/2009 | Dow Theory | retest recent lows; going higher |
| 9/2/2009 | Dow Theory | Double tops and Double bottoms |
| 8/25/2009 | Dow Theory | Russell changes from bear to bull |
| 8/24/2009 | Dow Theory | possible non-confirmation |
| 7/24/2009 | Dow Theory | a new bull market begins, bear market ends |
We hope you have profited from our analysis and enjoyed our contributions to the topic of Dow Theory.
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In the News: August 14, 2011
Betting on Bank of America Over Apple at Yahoo!Finance
Time to Bet on Bank of America at Barron’s
Why Contrarians Shouldn't Consider Bank of America at Investor’s Business Daily
Bank of America's back-door TARP at Fortune
The Flash Crash: Effects on S&P 500 Index versus non-Index stocks (PDF) at NYU.edu
Order Imbalances and Stock Price Movement on October 19 and 20, 1987 (PDF) at Wharton.edu
The Long-term Returns on the Original S&P 500 Firms (PDF) at Wharton.edu
Is Apple's Market Value Too Big for Comfort? at Barron’s
Cisco's Bids at Barron’s
Who started the S&P downgrade rumor? at Yahoo!Finance
CoolChip cools server farms with tiny flying saucers at Yahoo!Finance
Is Insurance Boring? at Forbes
How Tom Selleck predicted the future of tech at Fortune
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Nasdaq 100 Watch List: August 12, 2011
Below are the Nasdaq 100 companies that are within 10% of their respective 52-week lows and ranked by highest dividend yield. Stocks that appear on our watch lists are not recommendations to buy. Instead, they are the starting point for doing your research and determining the best company to buy. Ideally, a stock that is purchased from this list is done after a considerable decline in the price and thorough due diligence.
| Symbol | Name | Trade | P/E | EPS | Yield | P/B | % from Low |
| INFY | Infosys Limited | 53.78 | 19.77 | 2.72 | 1.60% | 4.97 | 2.56% |
| ATVI | Activision Blizzard, Inc | 10.71 | 19.76 | 0.54 | 1.50% | 1.16 | 2.98% |
| LIFE | Life Technologies | 38.42 | 19.77 | 1.94 | 0 | 1.53 | 3.36% |
| NIHD | NII Holdings, Inc. | 36.9 | 14.99 | 2.46 | 0 | 1.66 | 4.44% |
| AMGN | Amgen Inc. | 50 | 10.4 | 4.81 | 2.30% | 1.79 | 4.91% |
| FLIR | FLIR Systems, Inc. | 23.66 | 18.05 | 1.31 | 1.00% | 2.31 | 6.29% |
| ADBE | Adobe Systems | 24.1 | 12.91 | 1.87 | 0 | 2.2 | 6.31% |
| PCAR | PACCAR Inc. | 36.84 | 18.7 | 1.97 | 2.00% | 2.27 | 6.84% |
| WCRX | Warner Chilcott plc | 17.25 | 36.7 | 0.47 | 0 | 159.35 | 7.41% |
| MSFT | Microsoft Corporation | 25.1 | 9.33 | 2.69 | 2.50% | 3.7 | 7.63% |
| QGEN | Qiagen N.V. | 15.12 | 27.49 | 0.55 | 0 | 1.33 | 8.08% |
| LLTC | Linear Technology | 27.47 | 10.99 | 2.5 | 3.50% | 12.58 | 8.11% |
| PAYX | Paychex, Inc. | 26.66 | 18.77 | 1.42 | 4.70% | 6.41 | 8.11% |
| AKAM | Akamai Technologies | 22.55 | 22.48 | 1 | 0 | 1.86 | 8.94% |
| MU | Micron Technology, Inc. | 6.18 | 9.78 | 0.63 | 0 | 0.75 | 9.38% |
| ADSK | Autodesk, Inc. | 29.18 | 28.3 | 1.03 | 0 | 3.79 | 9.58% |
| CHRW | C.H. Robinson Worldwide | 68.4 | 27.36 | 2.5 | 1.80% | 8.49 | 9.79% |
| ESRX | Express Scripts, Inc. | 46.69 | 19.13 | 2.44 | 0 | 12.43 | 9.86% |
Watch List Performance Review
In our ongoing review of the Nasdaq 100 Watch List, we have taken the top five stocks on our list from August 15, 2010 and have checked their performance one year later. The top five companies on that list can be seen in the table below.
| Symbol | Name | 2010 | 2011 | % change | 11/9/2010 | approx. annualized gain | |
| GRMN | Garmin Ltd. | 27.05 | 31.32 | 15.79% | 10.94% | 37.68% | |
| PAYX | Paychex, Inc. | 24.97 | 26.66 | 6.77% | 11.21% | 38.61% | |
| MXIM | Maxim Int. | 16.75 | 22.65 | 35.22% | 35.28% | 121.50% | |
| KLAC | KLA-Tencor | 29.10 | 35.93 | 23.47% | 28.59% | 98.45% | |
| INTC | Intel Corp. | 19.15 | 20.65 | 7.83% | 10.50% | 36.14% | |
| Average | 17.82% | 19.31% | 66.48% | ||||
| ^NDX | Nasdaq 100 | 1818.80 | 2182.05 | 19.97% | 19.69% | 67.79% | |
The top 5 companies on our list last year underperformed the Nasdaq 100 by a narrow margin. However, in the chart above, you'll notice that all 5 stocks achieved 10% gains within 3 months (our ideal target for selling) of the August 15th posting, If all the stocks were bought after the posting and sold on November 9, 2010, as noted above, the gains would have approximated nearly 66% annualized returns. We cannot emphasis enough the value of selling stocks if a 10% gain is accomplished within a year while inside of a tax-deferred account. As you can see, the year end results vastly differ from the gains that could have been made.
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The General Nature of Bear Market Declines According to Charles H. Dow
"The stock market seldom has uninterrupted advances or declines. Its gains and its losses are the net outcome of an irregular movement. Even in a bear market, days of advance are very frequent.
"This is because there are always strong people long of stocks and hopeful enough to be willing to add something to their lines. It is because the seller of short stocks must become a buyer, while the holder of long stocks is not necessarily a seller. It is because whenever stocks become oversold, and there is difficulty in borrowing, somebody endeavors to start covering in order to make a turn out of frightened shorts. These, and other causes, combine to make more rallies in a bear market than there are relapses in a bull market, even where the total movement is about the same.
"Furthermore there is always a feeling on the part of traders when the market has gone one way for several days in succession, that it ought to turn, and stocks are bought in anticipation of recovery. The buyers are sometimes numerous enough, and powerful enough, to make by their own purchases the rally which they anticipate."
Quick Summary
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Declines are seldom uninterrupted
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Short sellers must eventually buy, investors that are long the market can remain inactive
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There are more rallies in a bear market than there are secondary reaction in a bull market even when the total movement is the same
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Buyers produce self-fulfilling rebounds in the market
Dow, Charles H. Wall Street Journal. October, 9, 1901
Sether, Laura. Dow Theory Unplugged. W&A Publishing. 2009. page 339.
Bishop, George W. Charles H. Dow and the Dow Theory. Appleton-Century-Crofts. 1960. page 167.
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Bear Market Rally Targets
Now that a bottom has been established, within the context of a bear market, we can calculate the bear market rally targets according to Dow Theory. The upside targets are:
- 11,527.87
- 11.767.18
- 12,073.49
- 12,724.41
- 12,807.51
A new bull market would be considered when the Dow Industrials and Dow Transports jointly exceed the prior highs set in May 2011, respectively.
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Posted in bear market rally targets, Dow Theory